For most Americans, owning a home is the realization of a dream, but purchasing a home requires a lot of investment. The U.S. Department of Housing and Urban Development (HUD) provides an array of programs through the Federal Housing Authority (FHA) to help people purchase homes. The FHA programs are intended to make purchasing a home cheaper. Programs provide such advantages as low down payments, help with closing costs and low interest rates. FHA programs include some specifically aimed toward first-time homebuyers, that must meet a few FHA guidelines so as to participate in the programs.
Exotic homebuyers need to meet certain credit requirements to get an FHA loan, but a good credit score may be insufficient. FHA guidelines also require most buyers to satisfy debt-to-income ratio limitations. The maximum is 41 percent. The ratios determine whether buyers are likely to be able to afford the loans they seek. The ratio compares the purchaser’s total monthly payments for revolving debts into the purchaser’s gross monthly income. According to the FHA website, credit history and job equilibrium also factor into whether or not a loan is approved.
HUD needs many first-time homebuyers to cover mortgage insurance on many FHA loans. This insurance policy protects the lender’s investment. In the end, small down payments are often required by FHA loans. In other words, the lender is in danger if the new homeowner is unable to make the payments. Mortgage insurance is added to new homebuyers’ payments. The yearly cost of this insurance is equal to 0.5 percent of the total loan amount. The insurance plan is eliminated after 5 years, or whenever the loan balance falls below 78 percent of the home’s value. First-time homebuyers that cover enough of a deposit to push the loan to value ratio below 90 percent are not required to pay mortgage insurance.
The quantity of money that most homebuyers are permitted to borrow via HUD loans is limited to maximums based on typical incomes for geographical regions. Buyers who do not have another source of funding cannot meet the requirements for HUD’s FHA loan plans if the home’s price is above the allowable maximum. In San Francisco, for example, a single-family home is limited to some 729,750 FHA loan. The best for a duplex is $934,200. Loan maximums vary based on the geographical area. In Champaign, Ill. the maximum to get a yearlong home is 271,050.